As campaigns vacillate about opening their digital wallets to cryptocurrency donations, they may receive warnings from an unlikely source.
The Congressional campaign for Ron Watkins – the man believed to be the mastermind behind the QAnon conspiracy theory and currently running for the Republican House in Arizona – reported a 27% loss in Bitcoin investments during his first six months as a candidate.
Watkins, a cryptocurrency enthusiast, received a letter from the Federal Election Commission this week with questions about where donations came from in his first campaign financial report, which he had already corrected once. While his fundraiser was still dismal — a total of $51,000 for a man who allegedly commanded an internet army — the new amended file, filed last week, revealed tens of thousands of dollars in previously unreported contributions.
Among these previously unreported donations were two Bitcoin gifts totaling $1,255. But, the document also noted that 27%, about $342, had already disappeared due to a drop in the currency’s value.
The inherent volatility of the cryptocurrency market comes with extra headaches in the political world, because the FEC, wary of unregulated and obscure digital currency, still does not treat cryptocurrency as currency. Instead, cryptocurrency donations are reported as in-kind contributions, such as a private flight or a reward from a porn star. Additionally, donation amounts have not been officially sanctioned at more than $100 – although they have not been officially capped either.
This “in-kind” label creates an extra step – liquidation. Political committees need to report the value of a cryptocurrency gift as market value at the time the donation is received, but more importantly, they cannot simply spend it. If they really want to use their Bitcoin, they need to take another step and convert it to dollars first – like with a stock.
But since cryptocurrency is much more volatile than stocks, the delay between donation and conversion can make a big difference. And that’s what the Watkins campaign found.
When Watkins first came forward to run for Congress on October 17, 2021, Bitcoin was valued at around $62,000, and just a few weeks later, it hit its all-time high of over $68,000. But on December 31, when the Watkins campaign assessed its final year holdings, cryptocurrency markets experienced a series of wild swings and dips, and Bitcoin is down around 25%.
In other words, if Watkins held a $100 Bitcoin endowment in October, it would be worth $75 at the end of the year.
But Watkins’ two Bitcoin donations came at a particularly bad time — right before a “flash crash” in December that wiped out nearly 20% of Bitcoin’s market cap. This was also around the time Watkins announced a new Bitcoin campaign donation model, involving a website that “you may or may not find”, although he assured supporters that it “is real”.
“The whole point of this is to prove to enemies that we can raise money and we can beat this,” Watkins said.
It is impossible to say how many applicants have decided to accept Bitcoin, and poorly understood reporting requirements make it difficult to know for sure how many have received contributions, although experts agree that the number has increased in recent years. And of all these committees, the Watkins campaign appears to be the only one to have reported a detailed loss on its Bitcoin donations, according to federal records. And that fact suggests that even the biggest supporters of cryptocurrencies in Congress are not comfortable trusting their investment to market temperament – that is, they are much more inclined to liquidate immediately, rather than wait and hope they are taken away. the moon .
For example, look at Blake Masters, a far-right Republican candidate running for Senate in Arizona and a longtime vocal supporter of cryptocurrencies.
Like Watkins, Masters went on a cryptocurrency fundraising spree in December. Instead of withholding those donations, however, Masters withdrew the money as quickly as possible — but the market was so volatile that even he still lost value.
In late December, Masters offered backers the chance to buy an NFT version of a 2014 book he co-wrote with his billionaire sponsor and chief technology officer, Peter Thiel. For sale, Masters created 99 NFTs — unique, digitized collectibles tied to some form of cryptocurrency — and put them up for $5,800 a pop, the equivalent of a maximum campaign donation. They sold off in three days, earning the campaign almost exactly $574,200, or more than a third of its fourth-quarter revenue.
Or should have made that much. A look at Masters’ campaign archives from the time shows that, in that three-day period, his committee received and converted over $165,000 in cryptocurrency donations into cash. But over the course of those 36 hours, the cryptocurrency markets have plummeted. Masters often discounted donations below $5,800 in value, with some installments equal, and sending $1,132 in processing fees to Coinbase.
And while the Masters campaign has been accepting digital currency since September – around the time he suggested the United States responds to China’s cryptocurrency crackdown with a “strategic reserve of Bitcoin” – it appears to have received no cryptocurrency contributions until the NFT blitz three months later.
The Watkins and Masters campaigns did not respond to a request for comment.
It is unclear whether the trend will continue. Masters has announced another round of NFTs, this time sold in “packs” of various quantities, with varying prices. But unlike the first round, the campaign store this time does not offer donors the chance to automatically link their cryptocurrency wallet. Instead, it offers credit card or Apple Pay options. Supporters who wish to donate with cryptocurrencies must first submit a special request via email or text message.
This means that this time, Masters will get all the prestige of blockchain, with the reliability of good old bucks – and the risks will fall on its donor-investors.
He is not alone. Earlier this month, Bloomberg reported that political donors in the cryptocurrency industry still prefer to donate dollars, with total cryptocurrency contributions under $600,000 in 2021 — making the Masters transfer one of the biggest by far.
The shutdowns include cumbersome reporting requirements and lack of liquidity, Bloomberg reported, with the conversion requirement creating a layer of inconvenience. And without a notoriously slow FEC review, the administrative and opportunity costs associated with cryptocurrency will still make the digital currency more problematic than it’s worth — although younger applicants will no doubt continue to wave it as a cultural flag even if they don’t. do. t see any returns.
(The FEC appears to have gone a step further by omitting the previous $100 cap in its candidate guide last year.)
As for Watkins, the public will not know if he is still “HODLing” his Bitcoin until his next campaign financial report, due in April. But after last year’s crashes — including a “flash crash” in early December that wiped out nearly 20% of Bitcoin’s value — Bitcoin still hasn’t broken $50,000. It is currently almost exactly where it was on December 31, the day he reported his unrealized loss.